Duke rate hike beats the drum of fossil fuel power production

It marks the third in a spate of rate increases the company has requested from the N.C. Utilities Commission, the state’s regulating body, during the past five years. The most recent increase went into effect February 2012, and now the company wants the next round of price hikes in place within a year.

If Duke Energy gets what it wants this time around, the average household electric bill will go up by another 14 percent or so while its commercial and business customers will see a lesser increase. The company serves about 1.9 million households and businesses in the state.

Duke’s biggest argument for the rate hikes is so it can build new coal and gas power plants. The money raised by the rate hikes would pay for the new electricity plants.

“They are now in an era of building new construction,” said Sam Watson, general counsel to the commission. “So they’ve been coming in every few years adjusting the rates to be able to earn a return on the initial investment.”

About 90 percent of the $446 million per year Duke would get from the latest round of proposed rate increases will go toward covering the cost of two new plants, one coal plant and one natural gas plant.

Duke said its new coal plant will replace older ones coming off line. Some of Duke’s power plants being phased out have been online since WWII, said Lisa Parrish, a spokeswoman for the company. She quoted the Duke Energy website and likened the upgrades to trading in a 1950s Pontiac for a Toyota Prius — today’s coal plants are cleaner.

“We’re modernizing our system,” said Parrish, a spokeswoman for the company. “Now that the plants are operating and serving our customers we are asking the commission to allow us to recover the cost to build them.”

However, one local environmental advocate sees the direction Duke is taking as anything but environmentally friendly. Avram Friedman, executive director of the environmental organization Canary Coalition based in Sylva, said funding the construction of more and more power plants allows for more and more energy use.

“We’re following a policy of greater and greater, endlessly increasing energy consumption,” Friedman said. “Instead of promoting more energy consumption, they should promote policies that reduce energy consumption.”

He said that approach by Duke does not address the real energy situation in the long-term.

Progress Energy is no exception either. The other main power company in the state, a subsidiary of Duke Energy following a merger of the two, is awaiting a final decision by the utility commission on its first major rate increase request since the 1980s.

Residential ratepayers could see their bills go up by about 14 percent or so if approved, and much of that extra revenue is slated for power plant construction.

Friedman expects many residents to come out in mass for an upcoming public hearing in Franklin to protest the proposed increases from an economic standpoint. Macon County has an unemployment rate of less than 12 percent, according to recent economic numbers. And many western counties are slow in recovering from the downturn.

“You’ll see a parade of people complaining about the higher cost of energy in hard economic times when they can’t afford it,” Friedman said. “You can expect there to be a packed house.”

Furthermore, Friedman feels like the movement to resist Duke’s repeated rate increases has gained a little steam from a recent N.C. Supreme Court decision. The court ordered the commission to provide further justification for approving Duke’s latest increases rates in February 2012. The case could ultimately go either way, with the court upholding or striking down the increase, but Friedman feels it at least places a little more emphasis on the process this time around.

One major aspect of Duke’s increase request has drawn scrutiny because it diverts more revenue to shareholders. As a regulated monopoly, the state caps things like profits and shareholder returns.

The company wants to raise the cap placed on stakeholder returns to 11.25 percent from 10.5 percent, a number that was set by the utility commission in the last rate increase case and is at the center of the order by the Supreme Court.

Progress Energy requested an identical increase on investor returns for its rate increase, now under review by commissioners.

But a Duke spokeswoman claimed the company seeks to strike a balance between customer rates and returns to investors. The better the return, the more confidant the stakeholders.

“The return must be reasonably sufficient to assure confidence in the financial soundness of the utility,” Parrish wrote in an email. “It’s a balance.”

However, not all are onboard with the increases.

“I think it’s safe to say we’ll be recommending something substantially below that,” said James McLawhorn, director of the Electric Division of the N.C. Utilities Commission Public Staff, the public advocacy arm of the commission.

McLawhorn and the public staff work to represent the interests of North Carolina residents in cases coming before the commission. They play a part in the negotiations with Duke and hearings before the commission, as do a slew of other special interests groups representing every cause from Walmart’s light bill to renewable energy initiatives to the Attorney General, who brought the last case before the state Supreme Court.

Sometimes the public staff can negotiate and reach an agreement with Duke and some of the shareholders and present it to the commission to consider. Other times that is not the case. McLawhorn said the public staff will publicize its stance on the latest increase request by early June, after the meeting in Franklin.

Apart from the power plant construction, Duke is looking to increase revenue that goes to tree trimming and a storm damage fund.

“We’re reviewing the application from Duke and the items they identified that is driving the need for the increase,” McLawhorn. “It’s the third of three rate increases Duke has requested over five years.”

Meeting in Franklin

Western North Carolina residents will speak their minds and Duke Energy officials will make their case as the first of a series of public hearings on the company’s proposed rate hikes kicks off 7 p.m. May 21 at the Macon County Courthouse in Franklin. The N.C. Utilities Commission will hold five public hearings across the state to solicit input on Duke Energy’s requested rate increase of nearly 10 percent. And, public testimony will be considered by the commission in making a final decision in the rate case.

Duke made the proposal to increase rates in February and the commission is expected to make a final decision on the case sometime this fall following the round of public hearings and an evidentiary hearing in Raleigh July 8, when industry groups, environmentalists, Duke Energy representatives and public advocates each pitch their case.

The commission can decide to approve all, none or some of Duke’s request.

This latest request marks the third Duke Energy rate increase case to come before the commission since 2009, with the company looking to fund a slew of fossil fuel power plant construction projects it has completed in the state. The commission approved a seven percent rate increase in 2009 and a five percent increase 2011.